Interactive Investor

ii view: British Airways owner IAG makes flying start to 2024

Although still a long way prices seen before the pandemic, shares in this FTSE 100 airline are up 10% so far in 2024. Buy, sell, or hold?

24th May 2024 15:34

by Keith Bowman from interactive investor

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British airways IAG 600 GettyImages-

First-quarter results to 31 March

  • Revenues up 9% to €6.43 billion
  • Operating profit of €68 million, up from €9 million in Q1 2023
  • Pre-tax loss of €4 million, improved from a loss of €87 million 
  • Net debt down 19.5% to €7.44 billion

Guidance:

  • Continues to expect non-fuel unit costs to increase slightly in 2024

Chief executive Luis Gallego said:

"Our transformation initiatives and increased demand, including over the Easter holidays, have delivered another very good set of results with improvements to both revenue and operating profit.

"Our Group benefits from the strength of our core markets - North Atlantic, South Atlantic and intra-Europe - and the performance of our brands. Investment across the Group in transformation is delivering encouraging improvements in punctuality and customer experience at our airlines. IAG Loyalty continues to perform very well.

"We are well-positioned for the summer. The high demand for travel is a continuing trend."

ii round-up:

International Consolidated Airlines Group SA (LSE:IAG) is one of the world's largest airline companies.

It operates a fleet of over 570 aircraft across several brands flying more than 100 million passengers annually to 91 different countries.  

It is a Spanish registered company with shares traded on the London and Spanish stock exchanges.

Brands include UK based British Airways, Spanish airlines Iberia, Vueling and Level, and Ireland's Aer Lingus. 

For a round-up of these latest results announced on 10 May, please click here

ii view:

A constituent of both the FTSE 100 and IBEX 35 indices, the multi-branded airline employs over 70,000 people globally. Operating out of core airport hubs London, Madrid, Barcelona and Dublin, rivals include Air France-KLM (EURONEXT:AF), Deutsche Lufthansa AG (XETRA:LHA) and budget airlines such as easyJet (LSE:EZJ) on European routes. 

Passenger revenue accounts for most if its sales at 88%, with cargo coming in at 4%. Other revenues include those from its BA Holidays business; demand for Iberia’s third-party maintenance and repair services; along with revenues derived from its Avios customer loyalty scheme.  

For investors, potential escalation of existing conflicts such as those in Ukraine should not be forgotten, while problems at aircraft supplier Boeing have already caused challenges for some US airlines. Elevated costs such as wages continue to pressure companies to reduce other discretionary costs such as business travel, while airline industry emissions and impact on climate change also warrant consideration. 

More favourably, accompanying management comments point to ongoing high demand for travel, and the airlines has strong market positions, including a 45% share of the Europe to North America market and 32% share of the Europe to Latin America market. Group net debt continues to decline from an elevated position during the pandemic, falling by almost a fifth this latest quarter, while pursuit of more fuel efficient and climate friendly twin engine planes is ongoing. 

In all, the many factors which can hinder airlines such as strike action and the weather make them arguably more suitable for higher risk investors. Nonetheless, reducing debt and increasing potential for shareholder returns, combined with a consensus analyst fair value estimate above 225p per share and improving outlook for the industry, will likely leave them on the radar of many investors.  

Positives: 

  • Diversity of brands
  • Industry consolidator

Negatives:

  • Heightened geopolitical tensions 
  • Halted dividend payment

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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